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129 Abercrombie v.

Davies | KB
SUMMARY: Plaintiff and defendant corporate shareholders combined to form an oil company. Defendants, controlling 54%
of the voting stock, entered into an agreement to vote their stock as a block. The agreement provided that (1) each of the
corporate shareholders would appoint agents to vote its stock, (2) the stock certificates would be placed in escrow, (3) an
arbitrator would be consulted if seven of the eight agents could not agree, (4) the agents could be removed at any time by
the corporate principals without cause, and (5) any seven of the eight could withdraw the stock from escrow and place it in a
voting trust. Plaintiffs, as minority stockholders, brought an action for a declaratory judgment that the agreement of
defendants was invalid. The TC upheld the agreement in part. On appeal the Delaware Court, held reversed. The agreement
is a voting trust. Voting trusts must be set up in accordance with the Delaware voting trust statute, which requires, inter alia,
that the stock transfer be noted on the books of the corporation and that a copy of the agreement be filed at the corporations
principal office. Since defendants voting trust did not meet these requirements, it is in invalid.
HELD: The Supreme Court invalidated it. The Court did not purport to invalidate all voting agreements that did not comply
with the voting trust statute. Indeed, the court seemed to recognize that if the agreement were not a voting trust in form or
effect, the statute would not be applicable. Hence, the finding of invalidity in this case rested upon the courts determination
that the defendants agreement was a voting trust. But it was held to be invalid.
DOCTRINE: Obviously, as a pooling agreement in substance and purpose approaches more and more nearly the substance
and purpose of the statute, there comes a point at which, if the statute is not complied with, the agreement is illegal. A
pooling agreement may not escape the statutory controls by calling the trustees agents and giving to the stockholders
receipts instead of voting trust certificates. If this were not so, stockholders could, through the device of an agreement such
as the one before us, accept for themselves the chief benefits of the statute: unified voting control through fiduciaries for an
appreciable period of time; and escape its burdens: the requirements for making an open record of the matter, and the
limitations in respect of time.

American Independent Oil Company is a Delaware corporation.

The organizers were:

The organizers subscribed in varying proportions to Americans original issue of stock.

Additional stock was later issued, and there are now 150,000 shares.

The organization agreement provided that the Board of Directors of American Oil should consist of one director for
each 5,000 shares held, and that the directors should be elected by cumulative voting.
In effect, stockholder has been permitted to name the director or directors to represent on the board his
or its interests.

Davies represents his own interest and is president of the corporation.

At all times, the number of directors has been 15.

No one stockholder holds a majority of stock, and no one stockholder is represented by more than 4
Obviously, smooth functioning of such a board was dependent either upon substantial harmony among
the interests represented on it or upon an effective coalition of the interests of a majority.

March 30 1950: 6 of the stockholders took steps to form such a coalition.

An agreement was executed between: 8 individuals, also designated as Agents and the 6 stockholders
Davies, Ashland, Globe, Lario, Hancock, and Signal.
These stockholders hold about 54 % of the shares. They are represented on the board by 8 of the 15
The Agents named in the agreement were at the time the 8 directors representing these 6

The obvious purpose of the agreement was to achieve effective control of the board and thus control of corporate
The motive for the agreement, according to the defendants, was to prevent acquisition of control by
Phillips, which was the largest single stockholder, holding about one-third of the stock.

The Agents' Agreement is an unusual one. In effect, it transfers voting control of the stock of the six stockholders
to the eight Agents for a period of ten years (subject to termination by seven of the Agents).
The Agents are to be, as far as possible, identical with the directors.
The agreement of seven of the eight is required to vote the stock and elaborate provisions are added for
the choice of an arbitrator to resolve disagreements. Somewhat similar provisions attempt to control the
action of the directors.
A more detailed examination of the agreement will later be made. At the moment we note that the
majority of the board secured by this agreement (eight of the fifteen) comprised Davies, the two Signal

directors, the two Hancock directors, the director representing Globe and Lario, and the two Ashland
The effective control thus sought to be achieved apparently lasted until December 9, 1954.
On that date a meeting of the Board of Directors was held in Chicago.
A resolution was adopted calling a special meeting of the board for December 16, to consider and take
action upon certain amendments to the by-laws and other matters. This resolution was adopted by a vote
of nine to six.
This majority consisted of Abercrombie, the four Phillips directors, the Sunray director, the Deep Rock director, and
the two Ashland directors.
The minority consisted of Davies and the Globe, Lario, Hancock and Signal directors.
In the meantime, the suit below was filed by Abercromie, Phillips and Sunray against the other shareholders and
the agents.
6 of the Agents appeared and answered.
The Chancellor made the following rules of law:
(1) Certain provisions of the Agents' Agreement attempting to control directorate action are invalid on their
(2) The agreement is not a voting trust;
(3) The provisions respecting stockholder action are severable from the illegal provisions, and constitute a
valid stockholders' pooling agreement.


Par (1): "Upon the signing of this Agreement, or as soon thereafter as it may be possible for them to do so, by
those whose certificates may be pledged or deposited, as hereinafter referred to, the Shareholders will deliver to
the Agents the certificate or certificates representing all the shares of American Independent Oil Company now
owned or controlled by them, said certificates to be endorsed in blank or attached to a stock power endorsed in
blank. Said Agents will give to each depositing Shareholder a proper receipt for all certificates so delivered."
The certificates and stock powers are to be deposited in escrow in a bank or trust company, subject to
withdrawal at any time by any seven of the agents.

Par (2): Sets forth a method of dealing with a possible increase in the number of Agents "(or in case a Voting Trust
shall have been created, the number of Trustees)".

Par (3): During the term of this Agreement the Agents or their successors shall have the sole and exclusive voting
power of the stock subject to this Agreement.
The Shareholders shall deliver to the Agents and shall keep in effect during the life of this Agreement
proxies giving said Agents or their successors jointly and each of them severally, with full power of
substitution to any or all of them, the power to vote the stock at all regular and special meetings of the
stockholders and to vote for, do or assent or consent to any act or proceeding which the Shareholders of
said corporation might or could vote for, do or assent or consent to.
The vote of the Agents shall always be exercised as a unit, on any matter on which a vote of the
stockholders is called for, as any seven of said Agents shall direct and determine.
If any seven Agents fail to agree on any such matter, then the question in disagreement shall be
submitted for arbitration to some disinterested person (i. e., one having no financial interest in American
Independent Oil Company), chosen by the affirmative vote of seven of the Agents, as sole arbitrator.
In the event a Voting Trust is established as provided in Paragraph 7 hereof, the provisions of the two
preceding subparagraphs shall remain in effect, substituting the words "Trustee" or "Trustees" for the
words "Agent" or "Agents" wherever those words occur in said two subparagraphs.

Par (4): Provides for filling a vacancy in the position of Agent.

As to the corporate shareholders, the successor is to be named by the shareholder that the Agent was
As to Davies, his successor is to be named by the majority of the remaining Agents. Each corporate
shareholder has the right to remove its Agent or Agents at any time without cause.

Par (6): Except as herein otherwise provided, the proxies to be given hereunder shall not be revoked and the
powers herein delegated to said Agents shall be irrevocable during a period of ten years from and after the date of
said Agreement. This Agreement, however, shall terminate if any seven of the Agents hereunder declare in writing
that the Agreement is terminated.
Upon the termination of said Agreement the certificates representing all of the shares so held under this
Agreement and then remaining in escrow or in the hands of said Agents or their successors shall be
returned or assigned to the parties then entitled thereto, upon surrender to said Agents of the receipts
given for said certificates.

Par (7): A ny seven of said Agents may at any time withdraw said stock certificates from escrow and transfer said
stock to the persons then acting as Agents, as trustees to be held under a voting trust.
The parties do hereby constitute any one of said Agents their attorney in fact to execute said voting trust
agreement for them and in their names, in the event any of them should be unable, or should fail or
refuse to sign said voting trust agreement upon the written request of seven of said Agents.

Plaintiffs assertion:

The agreement is invalid on its face.

In substance, though no tin form, it is a voting trust, but this voting trust is VOID because it does not comply with
the provisions of our voting trust statute.
Defendants assertion:

It is NOT and was not intended to be a voting trust, and is a mere pooling agreement of the kind recognized as
legal in Delaware.
ISSUE: WON there was a voting trust. (YES)

Corollary Issue: Was it legal? (NO)


When we apply these tests to the Agents' Agreement we find:

(1) that the voting rights of the pooled stock have been divorced from the beneficial ownership, which is
retained by the stockholders;
(2) that the voting rights have been transferred to fiduciaries denominated Agents;
(3) that the transfer of such rights is, through the medium of irrevocable proxies, effective for a period of ten
(4) that all voting rights in respect of all the stock are pooled in the Agents as a group, through the device of
proxies running to the agents jointly and severally, and no stockholder retains the right to vote his or its
shares; AND
(5) that on its face the agreement has for its principal object voting control of American.
These elements, under our decisions, are the elements of a voting trust.
ANOTHER SIGNIFICANT CIRCUMSTANCE: Paragraph 7 of the Agents' Agreement gives any seven of the eight
agents the power to withdraw the stock from escrow and to transform the Agreement into a formal voting trust.
Any one of the agents is authorized to sign the voting trust agreement for any shareholder who fails to do
so upon the request of any seven of the agents.
A form of a voting trust agreement is attached as an exhibit to the Agents' Agreement.
A comparison of this form with the provisions of the Agents' Agreement shows that upon the execution of
the Voting Trust Agreement the scheme of control functions just as it functions under the Agents'

Thus the only significant changes made in transforming the Agents' Agreement into a Voting Trust Agreement are
the provisions formalizing the trust, viz.:
(1) the Agents become Trustees a change of name and nothing more;
(2) the stock with irrevocable stock powers running to the Agents becomes stock registered in their names as
Trustees; and
(3) voting trust certificates instead of receipts are issued to the stockholders.

To sum up: the substance of the voting trust already existed; the transformation added only the special
mechanics that the statute requires.

The provisions of the statute that were not complied with are the requirement that the shares be transferred on the
books and the requirement that a copy of the agreement shall be filed in the corporation's principal office in

The effect was to create a secret voting trust.

The provision respecting the filing of a copy in the principal office in Delaware to open to the inspection
of any stockholder * * * or any beneficiary of the trust" is a provision obviously for the benefit of all
stockholders and of all beneficiaries of the trust, who are entitled to know where voting control of a
corporation resides.
And the provision for transfer of the stock on the corporate books necessarily serves, though perhaps
only incidentally, a similar purpose with respect to the officers and directors. If the validity of a
stockholders' pooling agreement of the kind here presented were to be sustained, the way is clear for the
creation of secret voting trusts. The statute clearly forbids them.

The failure to transfer the stock on the books is not a sufficient reason in this case for holding the Agents'
Agreement not a voting trust.
It is an indication that the parties did not intend to create a voting trust; but that subjective intention is

The stock here was endorsed in blank and delivered to the agents for deposit in escrow with irrevocable
Transfer of the stock on the books is not essential to effect an irrevocable transfer of voting rights
to fiduciaries, divorced from the other attributes of the stock, in order to secure voting control, as
the Agents' Agreement demonstrates.
It is such a transfer that is the characteristic feature of a voting trust.
The fact that the Agents are subject to control by their respective principals does not prevent the agreement from
constituting a voting trust.
The stock is voted by the Agents as a group. No one stockholder retains complete control over the voting
of its stock. It cannot vote its own stock directly; all it can do is to direct its Agent how to vote on a
decision to be made by the Agents as a group.
The stock of any corporate stockholder may at any time be voted against its will by the vote of the seven
other agents.
The control of the agents rests upon the provisions that they are severally chosen by the respective
stockholders and each may be removed and replaced by the stockholder he represents.

Such a provision is not inconsistent with a voting trust.

And the alleged continuing control of the Agent by the stockholder clearly would not exist in the event of
the death, removal or resignation of Davies in his capacity of Agent.

In that case his successor, whether Agent or Trustee, is named by a majority of the remaining
Agents or Trustees, as the case may be, and his estate has no control whatever over the Agent
so named.
Defendants: It is merely a pooling agreement. A pooling agreement may assume any form without running afoul of
the voting trust statute.
Supreme Court: WRONG. If we understand defendants argument, a pooling agreement may, through the medium
of fiduciaries with exclusive voting powers, awfully accomplish substantially the same purposes as a voting trust
and thus avoid compliance with the law. OF COURSE NOT
Obviously, as a pooling agreement in substance and purpose approaches more and more nearly the
substance and purpose of the statute, there comes a point at which, if the statute is not complied with,
the agreement is illegal.
A pooling agreement may not escape the statutory controls by calling the trustees agents and giving to
the stockholders receipts instead of voting trust certificates.
If this were not so, stockholders could, through the device of an agreement such as the one before us,
accept for themselves the chief benefits of the statute: unified voting control through fiduciaries for an
appreciable period of time; and escape its burdens: the requirements for making an open record of the
matter, and the limitations in respect of time.

For the foregoing reasons, we are compelled to disagree with the holding of the Chancellor upon the question
discussed. We are of opinion that the Agents' Agreement is void as an illegal voting trust.

DISPOSITION: REMANDED to Court of Chancery of New Castle County.